Friday, June 29, 2012

Canexus Corp

I do not own this stock (TSX-CUS). This stock is part of Sentry Small/Mid Cap Income Fund. It is a small cap that pays good dividends. See stocks in this fund on G&M. Sentry home site. This stock is also mentioned by Michael Decter . Michael Decter is president and CEO of LDIC Inc.

This was also a company that converted from an income trust (TSX-CUS.UN) to a corporation (TSX-CUS) in July 2011. They also bought out Canexus Limited Partnership. Consequently, there was a big increase in shares in 2011.

As an x-income trust, the dividend is still very good at 6.8%. Dividends have been inconsistent in that they decreased then in 2008, when they had an earnings loss. They have been level since that time. It looks from the spreadsheet that they decreased dividends in 2011 and increased then in 2012, but what happened is that they changed distributions timing from 12 dividends per year to 4 dividends per year.

I look at what is actually received, not what is declared. However, dividends declared in 2011 was $.55 per year as is the dividends declared in 2010 and 2012. However, as far as I can see, shareholders only got $.46 per share in 2011, but will get $.55 in 2012.

Also, like most x-income trust companies, this company has very high Dividend Payout Ratios. The 5 year median DPR for earnings is 126%and for cash flow is 102%. The DPR for earnings for 2011 was still 126%, but it is coming down. It is expected to be 112% in 2012 and 82% in 2013. The DPR for cash flow was 53% in 2012.

As far as total return goes, the 5 and 7 year returns are 7.9% and 1% per year, respectively. The problem is that the stock price has come down since this stock was issued 7 years ago. The dividends portion of total return is 9% and 7% per year over the past 5 and 7 years. Capital loss is 1% and 6% per year over the past 5 and 7 years. So basically you got to keep some of the dividends declared.

Cash Flow has at least been positive. It has not grown over the past 5 years but is down 4% per year, but is up 19% over the past 6 years. This is because 2005 (6 years ago) cash flow was low. Cash Flow was good in 2006 and 2007, but then dropped off. It is just now picking up again.

Book Value has gone down a lot. It is down 33% per year and 30% per year over the past 5 and 6 years. A big portion of this is because of large increase in shares due to the Limited Partnership buy out. Book Value went down 84% alone in 2011. However, it was also going down because when it was an income trust, it paid out more than earnings in dividends. This occurs for all income trust stocks.

The Return on Equity for 2011 is showing as 30% and this is confirmed by the ROE on comprehensive income for 2011. However, ROE, except for 2009 was very low. The 5 year median ROE is just 1.9%.

The Liquidity Ratio has always been low, but the current one at 1.41 is the highest it has even been. In the 2011 financial year it was lower 1.15, but with a strong cash flow. When this ratio is below 1.00, it means that current assets cannot cover current liabilities.

The debt ratio on this stock was very good in the past; however the current one and the one for 2011 was 1.23. With the purchase of the Limited Partnership units, debt has increased substantially. The Leverage and Debt/Equity Ratios are also very high and are currently at 5.29 and 4.29 respectively.

This stock has a very good dividend which seems sustainable. However, since we are in uncertain economic times, I would prefer to see better debt ratios and better growth. I will keep an eye on this stock and see how it does over the next couple of years. If it is a good stock, it will be also a good stock in a couple of years.

Analysts are expecting revenue and earnings to grow over the next couple of years. I would also like to see this growth and see growth in cash flow. I would say, nice dividend, but a bit risky.

Canexus Corporation is engaged in the production of sodium chlorate and chlor-alkali products, and operates a hydrocarbon terminal. They have four plants in Canada and two at one site in Brazil. Its web site is here Canexus. See my spreadsheet at cus.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.


  1. I'm not missing any dividends from 2011: 6 months of trust distributions, and 2 quarterly corp dividends came through (though the Dec '11 dividend wasn't paid until Jan '12). Even then, that's not the right amount for the discrepancy you have -- no idea where 9 cents would come from.

    Also, where are you getting the information on the limited partnership "buyout"? Those shares were spun-out into the market, not bought by the income trust (later corporation). There was no effect on (true) book value.

    Briefly, what happened was that the operating company was jointly owned by the income trust, and by Nexen. Nexen wanted out, so they converted their ownership of the operating assets into shares of the income trust, and sold those into the market. The share count increased, but the % ownership of the underlying assets increased as well, with no effect on book value.

    Part of the confusion seems to be how things were reported before: In 2010, the trust had basically no equity/BV except for the investment in the LP. I have no idea how the accountants determined that that was carried at ~$300M, but that earlier book value was fictional. The LP had assets of $754M and liabilities of $569M in 2010, which is close to the new combined corporate totals in 2011. In 2010 ~1/3 of that would have belonged to the income trust.

    It was a confusing structure, and a confusing unwinding.

  2. What I got for dividends in 2011 was 7 monthly payments and one quarterly payment. I specifically said I look at what is received in a specific year, not what is declared. As far as I can see, December 2010 monthly dividend was declared in December, but paid in January 2011. So I have December, January, February, March, April, May, June declared dividends, paid in January, February, March, April, May, June and July. Each was for $.0456. Also, September declared dividend was paid in October. December declared dividend was paid in January 2012.

    While maybe technically a buyout is not what happened. I knew this when I wrote my blog, and I see no reason to change my opinion. That is because 74,539604 Units were issued for the Fund’s Indirect Acquisition of Interest in Canexus LP. It says so right in the annual statements, note 27.

    Yes, I read all the stuff about how they were unwinding a complex situation. But all this resulted in a lot more shares and a lot less book value per share. I had looked at the two sets of accounting statements for Canexus Income Fund and Canexus Limited Partnership. This is not the only company to have such structures with less than understandable accounting overall.

    According to the 2010 annual statements, there were 39,341,055 shares worth $297.58M or $7.56 each. According to the 2011 annual statements there were 118,240,675 shares worth $147.05M or $1.24 each. I would characterize this as a drop in book value. Yes, I know that shares were issued for other reasons, but however, you look at it, there is a big drop in book value.

    If you were invested in Canexus Income Fund before the end of 2010 and you now held Canexus Corp shares, from the accounting statements, it would appear that book value on your shares went from $7.56 per share to $1.45 per share.

    All this is complicated by the fact that the company changed according rules for Canadian GAAP to IFRS. However, I do not change the values in my spreadsheets just because of accounting rule changes. Accounting rule changes happen all the time. I have to have a very good reason to change value in my spreadsheets to newer ones published. Sorry, but that is just the way I look at things.